When you start investing, you need a plan to guide the choices you make — what investments you buy, how long you hold onto them, and when you sell. If your approach to investing is haphazard — buying a stock here, a bond there, selling every time the market drops — you’re unlikely to meet your investment goals, and in fact you’re more apt to lose money than to see your portfolio grow.
As you begin familiarizing yourself with different types of investments, such as stocks, bonds, and cash equivalents, and consider what kinds might be appropriate for you, you’ll want to think about your risk tolerance, sometimes known as your investment style. Are you a conservative — or risk averse — investor? Are you a moderate investor, who wants to protect your principle while achieving modest growth? Or are you an aggressive investor who is willing to take considerable risks with the expectation of greater return? Your investment style will depend, among other things, on your age, your personality, and your time frame to meet your goals. Your investing style helps determine the strategy you adopt for meeting your objectives.
The right strategy depends on your risk tolerance, your goals, and your time frame to meet them.
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